US, American vow to press on with merger

Wednesday, August 14, 2013

Despite Tuesday’s decision by the Department of Justice to challenge the proposed $11-billion merger of American Airlines and US Airways, officials are still optimistic they will close the deal by the end of 2013.
“In light of today’s announcement, the companies no longer expect the merger to close during the third quarter of 2013,” US Airways Chief Executive Officer Doug Parker wrote Tuesday in a letter to employees. “However, we are hopeful that the litigation will be successfully concluded and we will close the merger before year end.”
In a joint statement, AMR Corp. — the parent company of American Airlines — and US Airways pledged “a vigorous defense” against the DOJ’s decision, pledging to use every legal avenue available to contradict the department's decision that a merged American would lead to less competition and would ultimately be bad for consumers.
“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together,” the carriers said. “Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices.”
AMR officials noted that a bankruptcy judge had already approved the merger, and unions for both carriers had voted for the deal to move forward. Keith Wilson of the Allied Pilots Association, which represents American pilots, said the union is committed to the new American Airlines.
“Approving the merger is in the best interests of all concerned,” he said in a statement. “We are disappointed that the U.S. Department of Justice has challenged the merger and look forward to the opportunity to highlight the merger’s many benefits.”
He added that the US and American routes are “highly competitive with little overlap” and that the combined carrier would be able to better compete against larger airlines like Delta and United, which have both been through their own mergers.
“Consolidation has enabled our industry to stabilize after a round of Chapter 11 bankruptcies that were the result of various exogenous shocks, including terrorist attacks, fuel price spikes and pandemics,” he said. “It makes no sense for the Justice Department to conclude now that airline industry consolidation is somehow undesirable.”
According to a note by Cowen and Company, industry watchers believe the merger will eventually be approved with the caveat that the combined carrier would have to give up some slots at various U.S. airports. Cowen had been skeptical of the carriers’ original third-quarter closing and now notes that will no longer be possible.
Of course, the move by the DOJ will also affect AMR’s bankruptcy plan.
“The merger between AMR and US Airways was the backbone of AMR's plan of reorganization,” Cowen and Company wrote. “If the merger is blocked, AMR will need to go back to the drawing board and come up with a new plan to emerge from bankruptcy, which essentially results in a smaller company going forward and job loss.” - Jon Ross